Mortgage options 2024

Real Estate
1

Dear all,

We are considering currently buying a primary property in Switzerland and I am trying to better understand the financials behind.

  1. We are going with an 20/80 payment plan. From that 20% of upfront payment - half of it (10%) can be from our pension fund (pillar 2) as per my understanding. Can it be also from pillar 3a or a mixed of the two? In the case of 2nd pillar how do you estimate / calculate the compound long-term effect that you would have from withdrawing such a big portion of your pension fund earlier? What would be the best strategy here?

  2. What is the situation about the taxes? On the one side you get some tax deductions because of the mortgage interest rate (how much?) and maybe because of renovations / -is there an annual value justified for renovations you can deduct also no matter what? On the other side you have the Eigenmietwert (the virtual income you would be getting if you would be renting the apartment) which is additional income. How is in total?

  3. How the selling price of the property gets defined / evaluated? After 10 years if you go to discuss for an extension on your mortgage the value of your house remains the same as you originally bought it or is there a reevaluation of the price (so your initial 20% or your 33% is changed?). Is there a minimum duration that you have to keep the apartment before being allowed to sell it?

  4. Can you pay the remaining 13% to reach 33% amortisation also from pillar 2, 3a? What’s the best strategy here for paying the remaining 13%?

  5. Except from Nebenkosten and Erneurungsfonds what other (maintenance) expenses shall you calculate and is there a rule of thumb for that maybe?

  6. would you consider 1.75% rate (fixed 5 years) a good interest rate at the current conditions (Jan 2024) or would lower be possible as well?

Many thanks in advance!

2

Hi,

I will give some answers but a lot of your questions are basic ones about mortgage structuring in CH. The best way for you to understand this would be to make an appointment with a bank advisor telling them that you want to calculate your affordability figures. If you go to a UBS or a cantonal bank branch this is usually free (don’t go to Moneypark and the like who may charge you for this ^^).

  1. The CH system makes the distinction between core and non core equity. To simplify, 2nd pillar funds are non core and the rest including 3a, cash, etc. are core. CH ASB regulations require 10% of core equity as a minimum and you can provide the rest as non core (i.e. with a 2nd pillar withdrawal). There are here more complex cases whereby if you can afford it and you strategy is to maximize the mortgage you can pledge accounts such as 3a accounts and these will contribute to the core equity part even if you don’t do a withdrawal.

  2. Eigenmietwert depends on the canton where you live in ZH for instance that’s 4.5% of the taxable value which itself is 70% of the market value of the realty. From a tax point of view you can deduct interest payements fully from taxes, renovation costs are deducted when they are done, if nothing you can apply a 1% reduction.

  3. Banks do regular valuations of your realty and may ask you to provide additional equity if the market goes down. You are allowed to sell whenever you want but taxes depend on how long you held the realty. Keep in mind that if you have a long term mortgage banks may ask you to pay early withdrawal penalties.

  4. This depends on your goal and situation. If you can afford it, so called in direct amortization in a 3a account is usually the go to solution. Redemption from the 2nd pillar require a withdrawal which you can only do every 5 years.

  5. Service fees for ventilation, hardware replacement, etc.

  6. 1.75 for 5 years looks competitive 1.7 is possible.

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